BANCROFT    LIBRAFY 


ggj^oft  Ubrar* 


Southern  Pacific  Railroad  Company  (of  California) 
First  Consolidated  Mortgage  Gold  Bonds. 


The  Southern  Pacific  Railroad  bonds,  now  offered  on  European 
markets  under  the  above  name  made  their  appearance  in  New  York, 
in  the  summer  of  1893.  On  September  23rd  of  that  year,  the  San 
Francisco  "Examiner"  published  an  exposition  of  their  character 
and  security,  prepared  by  me,  which  was  followed  by  their  withdrawal 
from  the  market.  In  the  Autumn  of  1898  a  contract,  supplemental 
to  the  original  mortgage  and  patching  some  of  its  defects,  was  put  on 
record  in  California,  and  the  bonds  were  offered  for  sale  in  Europe. 
A  further  examination  of  them  as  affected  by  that  supplemental  con- 
tract was  published  in  the  Examiner  of  December  23rd,  1898.  The 
length  of  these  papers,  and  the  fact  that  without  description  of  the 
topography  of  the  country  traversed  by  the  lines  in  question  they 
might  not  be  readily  understood  out  of  California,  has  led  me  to  recast 
the  matter  of  these  two  reports,  condensing  them  in  places,  and  adding 
the  topographical  information  referred  to. 

The  name  above  displayed  by  which  these  bonds  are  designated  is 
misleading.  The  word  FIRST  is  liable  to  cause  people  to  believe  that 
the  mortgage  securing  them  is  a  first  mortgage  on  the  whole  Southern 
Pacific  railroad,  or  at  least  on  the  main  road.  Such  is  not  the  fact. 
It  is  only  a  first  mortgage  on  fragments  or  sections  of  the  road,  most 
of  which  are  short  and  quite  unimportant.  The  other  parts  of  it  are 
subject  to  prior  incumbrances  of  over  thirty  million  dollars,  as  will 
appear  below. 

The  Company's  charter,  which  is  the  result  of  numerous  consoli- 
dations of  other  roads,  contemplates  the  construction  of  three  lines  of 
railroad  between  the  cities  of  San  Francisco  and  Los  Angeles,  across 
the  Coast  Range  of  mountains,  and  two  between  the  latter  city  and 
the  Colorado  River,  which  is  the  eastern  boundary  of  the  State. 
These  may  be  briefly  described  as  follows: 

A  main  stem  from  San  Francisco,  southwardly,  83  miles,  to 
Carnadero  Junction,  where  the  proposed  routes  to  Los  Angeles  first 
diverge  from  one  another,  and  from  which  place  they  run  as  follows: 

First.  From  Carnadero  Junction  via  Hollister,  Tres  Pinos,  San 
Benito,  and  so  across  the  Coast  Range  of  mountains,  by  the  Panoche 
Pass  (elevation  2,120  feet)  to  Alcalde,  on  Los  Gatos  Creek,  in  the  San 
Joaquin  Valley;  and  thence,  via  Goshen  and  Bakersfield  and  across 
the  Tehachapi  mountains  to  Mojave,  and  thence  southwardly  to 
Los  Angeles. 

This  line  is  all  built  except  the  mountain  gap  between  Tres  Pinos  and 
Alcalde,  (68  miles,  in  an  air  line,  but  winding  as  it  must  over  a  moun- 
tain pass,  of  unknown  length). 

.si  Si  M'f 


Second.  Also  from  Carnadero  Junction,  via  Pajaro,  Castroville, 
Salinas  and  San  Miguel,  and  thence  across  the  Coast  Range  by  the 
Polonio  Pass  (elevation  1,734  feet)  to  Poso  or  thereabouts  (say  90  miles 
in  an  air  line,  but  winding  as  it  must,  over  the  Pass,  of  unknown  length.) 

This  has  been  built  from  Carnadero  to  San  Miguel,  at  the  foot  of 
the  Pass,  but  at  that  point,  recoiling  from  the  ascent  it  turns  towards 
the  west,  and  runs  to  Surf,  on  the  Ocean  shore.  The  gap  across  the 
mountain  pass  (also  unbuilt)  is  about  170  miles. 

Third.  From  Surf  a  line  has  been  projected  substantially  follow- 
ing the  shore  line  to  Santa  Barbara,  whence  there  is  a  road  to  Los 
Angeles,  making  the  third  projected  line  to  that  city;  not  one  of  which 
is  completed,  for,  in  this  instance,  as  in  the  other  two,  the  mountain 
chain  interposes  between  the  two  members  of  the  road,  leaving  a  gap 
of  unknown  length,  to  close  which  will  require  to  either  build  across 
or  tunnel  through  the  mountain.  It  is  said  that  the  Company  has 
spent  considerable  sums  in  making  tunnels  here,  but  the  place  is  re- 
mote and  little  frequented  and  I  have  not  been  able  to  learn  what 
work  has  been  done,  how  much  remains  to  be  done,  or  whether  it  is 
being  prosecuted  or  has  been,  as  some  say,  abandoned. 

As  to  the  character  of  the  country  through  which  these  three  routes 
are  laid  out.  The  main  stem  from  San  Francisco  to  Carnadero 
Junction  traverses  the  rich  and  fertile  Santa  Clara  Valley.  At  Car- 
nadero begins  the  ascent  of  the  Panoche  Pass,  and  the  train  by  the 
time  it  reaches  Hollister  (12  miles)  has  attained  an  elevation  of  284 
feet,  above  sea  level.  The  next  six  miles  carry  it  to  Tres  Pinos  (eleva- 
tion 514  feet),  and  there  it  stops,  in  the  heart  of  the  mountains,  at  one 
fourth  of  the  elevation  needed  to  cross  them. 

The  other  branch,  to  avoid  the  mountain  pass  turns  first  to  the 
west,  and  then  to  the  south,  following  the  Salinas  Valley,  gradually 
ascending  till  it  reaches  San  Miguel,  where  a  height  of  616  feet  is 
attained.  This  portion  of  the  route  extends  through  the  very  narrow 
valley  of  the  Salinas  River,  the  business  of  which  can  scarce  be  expect- 
ed to  pay  more  than  running  expenses,  if  so  much.  As  far  as  Salinas 
(34  miles)  it  is  used  by  the  Monterey  trains,  which  pass  twice  daily 
each  way.  But  between  Salinas  and  San  Miguel,  one  daily  slow  (18 
miles  an  hour)  passenger  train  suffices.  Between  San  Miguel  and 
Surf  the  road  overcomes  a  summit  of  996  feet,  and  then  descends  to 
the  sea  level  in  the  last  67  miles  of  its  course.  Over  this  portion  of 
the  road,  trains  are  advertised  to  run  three  times  per  week,  each  way. 
It  will  be  seen  that  the  prospect  of  lucrative  traffic  over  the  215  miles 
of  the  coast  line  road,  lying  south  of  Salinas  (more  than  two-thirds  of 
the  whole)  are  scant,  or  Nil. 

All  of  this  road  south  of  San  Miguel  was  commenced  by  a  company 
called  the  Southern  Pacific  Branch  Railway  Company,  which  issued  a 
large  amount  of  bonds  on  it,  whereof  $3,578,000  were  still  outstanding 
at  last  report. 

THE    LINES    EAST   OF   THE   COAST   RANGE. 

The  lines  between  Los  Angeles  and  the  Colorado  River  are  made 
up  of,  First:  a  road  from  Mojave  across  the  desert,  242  miles  to  the 
river,  at  a  point  called  the  Needles;  and,  second,  one  from  Los  Angeles 
eastward  via  Colton  to  the  same  stream  at  Fort  Yuma. 

It  will  be  inferred  from  the  above  that  no  one  of  the  three  routes 
described  between  the  two  cities  is  continuous,  between  its  declared 
termini;  and  such  is  indeed  the  fact.  The  property  consists  of  three 
connected  roads  on  the  west  side  of  the  Coast  Range  of  mountains,  and 


3 

two  separate  ones  of  the  east  side  of  the  same  chain,  between  which  no 
connection  has  been  built.* 

Now  as  to  the  mortgages  and  the  companies'  bonds  now  offered  for 
sale. 

The  Southern  Pacific  Railroad  Company's  first  mortgage  is  dated 
April  1st,  1875,  and  covers  property  of  which  the  following  is  an 
abbreviated  description : 

The  railroad  and  telegraph  line,  running  from  San  Francisco  in  a 
southerly  and  southeasterly  direction  via  Carnadero  junction,  Salinas 
valley  and  Polonio  pass  to  the  Colorado  River  at  or  near  the  Needles. 
Also,  from  Carnadero  junction  to  San  Benito. \  Also,  from  Los  Gatos 
creek,  via  Goshen,  to  the  junction  with  the  first  mentioned  line,  some- 
where between  Poso  creek  and  Kern  river.  Also,  from  the  junction 
near  Tehachapi,  via  Los  Angeles,  to  the  Texas  Pacific  road  at  Fort 
Yuma.  Also,  from  Los  Angeles  to  Wilmington  on  San  Pedro  bay — 
aggregating  1,150  miles. 

This  mortgage  was  made  largely  in  advance  of  construction,  and 
it  is  assumed  to  attach  to,  and  become  a  lien  on  the  road,  as  fast  as 
constructed,  so  far  as  the  location  of  the  latter  comes  within  the  gen- 
eral words  of  description  in  the  mortgage.  The  road  having  been 
built  from  San  Francisco,  via  Carnadero  junction,  to  Tres  Pinos  (27 
miles  short  of  San  Benito),  and  from  Carnadero  junction  to  San 
Miguel,  the  mortgage  becomes  a  lien  on  that  much  of  the  road,  being 
the  northerly  224  miles  of  the  part  west  of  the  Coast  Range.  And 
should  the  gap  between  Hollister  and  Alcalde  be  closed  by  this  com- 
pany (which  is  quite  improbable)  the  first  section  of  it — viz.:  from 
Tres  Pinos  to  San  Benito — will  also  become  subject  to  the  same  lien. 

The  road  is  also  built  from  Alcalde  to  Goshen  (61  miles);  thence, 
via  Poso  and  Bakersfield,  to  Mojave  (141  miles),  and  from  that  place 
both  to  the  Needles  direct,  and,  via  Los  Angeles,  to  Yuma  (356  miles), 
and  from  Los  Angeles  to  Wilmington  (20  miles  more).  These  make 
an  aggregate  east  and  west  of  the  Coast  Range  of  802  miles,  besides 
the  242  between  Mojave  and  the  Needles,  which  are  sold  to  another 
company.  On  these  portions  of  the  road,  aggregating  802  miles,  the 
mortgage  of  1875  is  also  a  first  lien. 

According  to  the  latest  report  of  the  company  giving  such  particu- 
lars, there  was  due  on  this  first  mortgage  $30,577,500,  a  sum  far 
beyond  the  value  of  the  property  mortgaged.  It  is  manifest  that  a 
second  mortgage  on  the  same  property  is  of  no  value  as  security  for  a 
loan. 

The  mortgage  of  1893  is  such  second  mortgage  on  the  greater  part 
of  the  route.  It  includes  the  same  premises  as  those  described  in  that 
of  1875,  except  the  road  from  Mojave  to  the  Needles,  under  the  fol- 
lowing description  (also  abbreviated) :  BflDCToft  Library 

*  A  reader  unacquainted  with  Southern  Pacific  ways  may  perhaps  wonder  on 
reading  this  statement  how  the  journey  between  San  Francisco  and  Los  Angeles  is 
made  by  rail,  as  described  in  advertisements  and  guide  books.  The  answer  is  that  it 
is  not  made,  over  any  of  these  routes,  west  of  the  Coast  Range,  but  over  another 
route,  owned,  controlled  and  managed  by  the  same  parties.  The  last  mentioned 
route  runs  around  the  bay  shore  via  San  Pablo,  Martinez,  Lathrop,  and  so  up  the 
San  Joaquin  Valley  to  Goshen,  Bakersfield,  Tehachapi  and  Los  Angeles.  No  one  of 
the  three  lines  described  west  of  the  Coast  Eange  mountains  and  south  of  Carnadero 
Junction  has  an  earning  capacity  sufficient  to  pay  more  than  running  expenses,  if 
that  much.    Yet  they  are  expected  to  carry  a  mortgage  of  $30,000  per  mile  ! 

t  San  Benito  is  on  the  projected  line  across  the  Panoche  Pass. 


From  San  Francisco,  via  San  Mateo,  Santa  Clara,  San  Benito, 
Monterey,  Fresno,  Kings,  Tulare  and  Kern,  to  Mojave. 

Also  from  near  Tehachapi,  via  Los  Angeles  to  the  Colorado  River, 
at  Yuma,  356  miles. 

Also  from  Gilroy  to  Salinas  City,  33-1/2  miles.  Also  from  Salinas 
City  to  a  point  in  Kern  County,  south  of  Tulare  Lake,  intersecting 
the  San  Joaquin  division  of  the  Southern  Pacific  Road  (200  miles)  and 

Also  from  Los  Angeles  to  San  Pedro,  24  miles. 

It  will  be  observed  that  this  description  excludes  the  road  between 
Mojave  and  the  Needles,  and  includes  so  much  of  the  unbuilt  road 
across  the  Panoche  Pass  as  lies  between  San  Benito  and  Alcalde,  and 
the  four  miles  of  road  between  Wilmington  and  San  Pedro.  With 
these  unimportant  exceptions,  the  two  mortgages  cover  the  same 
premises,  and  that  of  1875  has  priority,  and  preference. 

But  besides  being  a  second  mortgage  on  the  roads  above  described, 
the  instrument  under  examination  includes  the  following  roads,  and 
parts  of  roads  (disjecta  membra)  scattered  up  and  down  the  State,  for 
the  location  of  which  I  must  refer  the  reader  to  the  best  map  that  he 
can  obtain,  as  detailed  description  would  occupy  too  much  space.  I 
add  to  the  name  of  each  town  mentioned  its  population,  if  given  in 
the  last  census,  and  to  each  road  named,  mention  of  the  extent  to 
which  it  is  built  or  otherwise. 

2.  Hillsdale  to  New  Almaden,  7  miles  (built). 

3.  Pajaro  to  Santa  Cruz  (population  5,496),  Aptos  and  head  of 
Aptos  Creek,  27  miles  (built). 

4.  San  Miguel  (population  458)  to  the  Southern  Pacific  Railroad 
near  Saugus,  250  miles;  this  has  been  built  and  operated  as  far  as 
Surf,  97  miles.  It  is  also  built  from  Saugus  westward  to  Santa  Bar- 
bara, 78  miles,  between  which  and  Elwood  there  is  a  narrow-guage 
road.  This  road  however  is  subject  to  a  prior  mortgage  made  by  the 
branch  company  that  built  it,  on  which  $3,578,000  were  due,  according 
to  the  latest  report  of  the  company  which  imparts  such  details. 

5.  Castroville  (population  641)  to  Monterey  (population  1,662), 
Pacific  Grove  (population  1,336),  etc.,  16  miles  (built). 

6.  Martinez  (population  1,600)  to  Tracy,  and  thence  to  S.  P.  road 
near  Pampa  (260  miles,).     It  is  built  to  Goshen,  149  miles. 

7.  Avon  to  Pleasanton,  25  miles.  (It  is  built  to  San  Ramon),  20 
miles. 

8.  Stockton  (population  14,424)  to  Milton,  25  miles  (built),  thence 
to  Big  Trees  and  Altaville,  80  miles  (unbuilt). 

9.  Peters  to  Poso,  218  miles,  with  branch  to  Modesto,  16  miles 
more;  built  to  Merced  (population  2,000),  59  miles,  remainder  unbuilt. 
Branches  projected  to  Sycamore,  Fresno  and  Tulare  (all  unbuilt). 

10.  Berenda  to  Perry's  Ranch,  25  miles,  built  to  Raymond  (21 
miles),  rest  unbuilt. 

11.  Los  Angeles  to  San  Diego  (with  branches),  estimated  140 
miles.  This  road  belongs  to  the  Southern  California  Railroad  Com- 
pany, as  shown  in  the  railroad  commissioners'  map  of  the  State. 

12.  Los  Angeles  (population  50,395)  to  Santa  Monica  (population 
1,580),  18  miles  (built). 

13.  Southern  Pacific  Junction  to  Point  Firmin,  5  miles  (built). 

14.  Long  Beach  (population  564)  to  Whittier  (population  525), 
Ramona,  etc.,  60  miles."  (About  15  miles  built  that  might  come 
within  the  description;  rest  unbuilt.) 

15.  Long  Beach,  easterly  4  miles  (unbuilt). 


16.  Ramona  to  Crafton,  71  miles  (unbuilt). 

17.  San  Francisco  to  San  Bruno,  11  miles  (unbuilt). 

18.  Kings  City  to  Lewis  Creek,  15  miles  (unbuilt). 

19.  Paso  Robles  to  Carissa  Plains,  56  miles  (unbuilt). 

20.  San  Luis  Obispo  to  Santa  Ynez  Mission,  35  miles  (unbuilt). 

21.  Santa  Ynez  River  to  Lompoc  and  S.  Y.  Mission,  35  miles 
(unbuilt). 

22.  San  Buenaventura  to  Los  Angeles.  (Built  from  Los  Angeles 
to  Chattsworth,  30  miles;  rest  unbuilt.) 

23.  Santa  Monica  to  Wharf,  3  miles  (built). 

24.  Ontario  to  Elsinore,  41  miles  (unbuilt). 

25.  San  Bernardino  to  Riverside,  28  miles  (belongs  to  another 
company). 

26.  Declezville  to  Declez,  3  miles  (built). 

27.  Redlands  to  Yucaipa  Valley,  15  miles  (unbuilt). 

28.  San  Bernardino  to  Motor  Junction,  8  miles  (unbuilt). 

29.  Collis  to  Fresno,  16  miles  (built). 

30.  Mendota  to  Lokern,  100  miles  (built  from  Collis  to  Armona, 
26  miles). 

31.  Lokern  to  Rio  Bravo,  16  miles  (built). 

32.  Stevens  to  Bakersfield,  15  miles  (built). 

33.  Lokern  to  Asphalto,  10  miles  (built). 

Whether  these  last  three  are  subject  to  the  first  mortgage,  queref 

34.  Stevens  to  Pampa,  56  miles  (unbuilt). 

35.  Fresno  to  headwaters  San  Joaquin  river,  75  miles  (unbuilt). 

36.  Montpelier  to  Yosemite  Valley,  92  miles  (unbuilt). 

37.  Such  other  or  further  branch  roads  as  the  company  may  pur- 
chase or  acquire.  These  are  practically  in  the  moon.  This  is  perhaps 
the  earliest  attempt  to  mortgage  property  not  yet  defined  even  in  the 
mind  of  the  mortgagor.  But  it  is  quite  natural,  as  these  parties  would 
not  have  a  road  without  a  mortgage  on  it  of  $30,000  per  mile. 

With  these  facts  before  him,  the  reader  will  recognize  that  the 
mortgage  of  1875  being  a  first  lien  on  the  existing  road  from  San 
Francisco  via  Carnadero  junction  to  Tres  Pinos  and  San  Miguel,  on 
the  west  side  of  the  Coast  range,  as  well  as  from  Alcalde  to  Goshen, 
and  thence  to  the  Colorado  River  both  at  the  Needles  and  Fort  Yuma, 
and  the  short  road  from  Los  Angeles  to  Wilmington,  and  there  being 
more  than  thirty  million  dollars  due  on  it,  a  second  mortgage,  such 
as  this  of  1893,  on  the  same  property,  affords  no  security  to  the 
holders  of  bonds  under  it. 

The  road  from  San  Miguel  via  Surf,  and  Santa  Barbara  to  Los 
Angeles,  was  commenced  by  another  company  (now  consolidated  with 
the  Southern  Pacific),  and  its  first  owners  made  a  mortgage  on  it,  which 
also  takes  precedence  of  that  of  the  Southern  Pacific's  of  1893.  The 
amount  reported  due  on  this  encumbrance  is  $3,578,000.  Hence  this 
portion  of  the  road  affords  no  security  to  the  present  mortgage.  There 
is  also  the  consolidated  mortgage  of  1888  on  the  whole  of  the  prop- 
erty, on  which  is  due,  per  latest  report,  $524,000. 

A  portion  of  the  road  running  out  of  Stockton  to  Milton,  etc.,  was 
built  by  the  Stockton  and  Copperopolis  Company,  and  stands  mort- 
gaged by  that  company  for  $500,000,  which  is  also  a  prior  lien  to  the 
mortgage  under  consideration.  The  company's  mortgage  of  1888 
(one  of  those  which  that  of  1893  is  designed  to  replace)  recites  among 
other  things  the  existence  of  the  following  mortgages,  viz: 


On  the  Pajaro  and  Santa  Cruz  road,  on  which  was  due.  .  .  .$    530,000 

"     "    Monterey  road   220,000 

"     "    Los  Angeles  and  San  Diego 556,000 

"     "    San  Pablo  and  Tulare 1,023,000 

and  the  intention  of  the  company  to  retire  the  same  and  cause  these 
mortgages  to  be  satisfied,  and  also  to  retire  and  cancel  certain  unissued 
bonds,  viz: 

Of  the  Los  Angeles  and  San  Diego  road  for $2,224,000 

San  Pablo  and  Tulare 2,727,000 

and  cause  those  mortgages  to  be  satisfied;  and,  as  soon  as  can  be  done  on 
satisfactory  terms,  to  arrange  for  the  redemption  of  the  mortgage  bonds 
issued  by  the  S.  P.  Branch  Railway  Company,  and  when  arrangements 
have  been  made  for  the  redemption  of  all  thereof,  to  cause  the  same  to  be 
canceled,  and  that  mortgage  to  be  satisfied  of  record. 

I  do  not  know  whether  any  of  these  good  intentions  have  been  ful- 
filled (all  of  them  certainly  have  not),  but  persons  proposing  to  pur- 
chase the  issue  now  offered  for  sale  would  do  well  to  inform  themselves 
on  the  question.  Even  if  they  all  have,  the  liens  admitted  in  the 
company's  report  above  referred  to,  as  prior  to  the  mortgage  of  1893, 
on  the  property  affected  by  them,  as  above,  amount  to  $35,179,500. 
The  portions  of  roads  designated  in  the  above  enumeration  by  the 
numbers  2,  3,  4,  5,  6,  7,  9,  10,  12,  13  and  14  are  included  in  the 
$38,000,000  mortgage  of  1888,  while  that  designated  by  the  number  8 
is  in  the  Stockton  and  Copperopolis  mortgage,  so  that  the  only  roads 
on  which  this  instrument  of  1893  can  be  a  first  mortgage  are,  Peters 
to  Oakdale  (17  miles),  part  of  No.  9;  Los  Angeles  to  Chatsworth  Park 
(30  miles),  part  of  No.  22;  Santa  Monica  to  the  wharf  (2  miles),  part 
of  No.  23;  No.  9;  Declez  to  Declezville  (3  miles);  Collis  to  Armona 

(26  miles),  part  of  No.  30;  Long  Beach  to (15  miles),  part  of 

No.  14,  and  Bakersfield  to  Asphalto  (41  miles),  comprising  the  three 
Nos.  31,  32  and  33.  These  make,  in  all,  134  miles  of  road  on  which 
the  mortgage  is  a  first  lien,  and  on  the  strength  of  this  fact  the  bonds, 
amounting  now  to  over  nineteen  million  dollars,  are  offered  for  sale 
as  "  FIRST  consolidated  mortgage  gold  bonds"! 

Only  one  of  these  has  a  continuous  length  of  over  forty  miles, 
while  the  other  six  average  but  15^  miles  each,  and  are  disconnected 
with  one  another.  Profit  from  them  (should  they  be  bought  by  the 
bondholders,  at  foreclosure  sale)  is  obviously  out  of  the  question; 
scattered  as  they  are,  they  would  require  seven  different  equipments 
(cars,  locomotives,  etc.),  as  many  sets  of  train  hands,  conductors  and 
local  superintendents,  and  other  separate  employees.  Only  one  of 
them  reaches  a  place  of  considerable  importance;  the  other  places 
named  appear  too  insignificant  to  be  noticed  in  the  census. 

The  aggregate  of  bonds  already  issued  under  this  precious  "  first 
consolidated  gold  mortgage  of  1893  "  is,  according  to  the  latest  report 
of  the  company,  which  gives  such  trifling  details,  $19,669,000  (vide 
report  of  S.  P.  Company  for  the  year  ending  June,  1897,  page  65), 
and  this  for  roads,  without  terminals  or  equipment,  and  only  capable 
of  use  as  feeders  to  the  Southern  Pacific  road! 

After  what  has  been  said  it  seems  scarce  necessary  to  pursue 
further  an  enquiry  as  to  the  value  of  these  bonds.  But  as  the  parties 
have  attempted  to  make  them  attractive  by  the  new  contract  above 
mentioned  between  the  mortgagors,  the  mortgagees  and  the  Southern 
Pacific  Company  of  Kentucky,  lessees  of  the  roads,  dated  August  18th, 
1898,  it  becomes  necessary  to  examine  them  in  the  light  of  that 


instrument,  with  the  following  results.  This  supplemental  contract 
of  August,  1898,  does  indeed  remedy  one  gross  defect  in  the  mortgage 
of  1893,  which  I  formerly  pointed  out,  but  it  discloses  and  emphasises 
others  of  nearly  equal  importance  and  fatal  to  the  bonds  under  con- 
sideration.    Two  of  these  may  be  briefly  explained  as  follows: 

1.  The  Southern  Pacific  Railroad  Company  of  California,  whose 
"  first  consolidated  mortgage  gold  bonds  "  are  now  offered  for  sale,  is 
not  the  present  company  of  that  name,  but  one  which  was  formed  in 
May,  1888,  by  the  consolidation  of  eighteen  different  companies, 
formerly  existing,  each  of  which  was  swallowed  up  by  it,  in  that  con- 
solidation, just  as  it  was  in  turn  swallowed  up  on  the  12th  of  April, 
1898,  when,  by  articles  of  that  date,  it  was  consolidated  with  the 
Northern  Railway  Company,  the  Northern  California  Railway  Com- 
pany, and  the  California  Pacific  Railroad  Company.  These  consoli- 
dations are  permitted  by  our  law,  but  its  provisions  on  the  subject  are 
only  general,  permitting  consolidation  of  assets,  stock  property,  etc., 
without  any  provisions  for  details.  It  is  recognized,  and  the  supple- 
mental contract  proceeds  directly  on  the  assumption  that  the  several 
companies  entering  into  the  consolidation  thereby  pass  out  of  existence, 
and  that  a  new  corporation  is  created  by  it,  which  succeeds  to  the 
property,  rights,  and  duties  of  the  several  constituent  companies*- 

This  being  so,  the  Southern  Pacific  Railroad  Company,  created  by 
the  consolidation  of  May,  1888,  succeeded  thereby  to  the  responsibili- 
ties and  rights  of  each  one  of  the  eighteen  companies  which  were 
absorbed  in  it,  and  similarly  the  present  company  of  the  same  name 
has  succeeded  to  its  rights  as  well  as  to  those  of  the  three  other  com- 
panies which  entered  into  consolidation  with  it  in  April,  1898.  Now 
several,  if  not  all,  of  these  various  constituent  companies  had  made 
large  mortgages  on  their  separate  roads,  to  secure  an  issue  of  bonds, 
and  these  bonds  they  had  the  right  to  issue  and  sell,  up  to  the  gross 
amount  expressed  in  the  respective  mortgages.  In  like  manner  the 
Southern  Pacific  R.  R.  Company,  of  May,  1888,  itself  made  a  mortgage 
for  $38,000,000  on  all  the  same  roads  on  which  some  $13,000,000  or 
so  only  were  issued,  leaving  about  $25,000,000  still  issuable.  All 
these  various  mortgages  were  and  are  prior  in  time  and  in  right  to 
that  of  1893,  and,  if  the  power  to  issue  bonds  under  them  still  contin- 
ues in  the  existing  Southern  Pacific  R.  R.  Company,  the  bonds  so 
issued  will  become  a  prior  lien  to  those  issued  under  this  mortgage  of 
1803: — a  result  to  be  contemplated  by  the  confiding  public  who  are 
invited  to  buy  them  in  Berlin  or  Frankfort-on-the-Main  at  a  little 
above  par.  Strange  to  say,  this  monstrous  power  to  destroy  the  value 
of  the  bonds  offered  for  sale,  by  the  issue  of  others  which  will  take 
precedence  of  them,  is  not  only  claimed  by  the  Southern  Pacific  R.  R. 
Company,  but  the  claim  is  put  forward  in  this  very  supplemental 
contract,  and  assented  to,  by  acceptance,  by  the  New  York  Central 
Trust  Company,  as  trustee  for  the  bondholders;  so  that  when  done 
it  can  be  claimed  to  have  been  done  with  the  assent  of  the  latter 
through  their  trustee  and  representative!  This  result  is  attained 
under  the  covenant  marked  D  in  the  paper  I  have  designated  as  a 
supplemental  contract,  which  expressly  provides  that  the  Southern 
Pacific  Railroad  Company  covenants  that  it  will  not  increase  its 
mortgage  indebtedness  under  any  of  the  mortgages  of  the  Northern  Rail- 
way Company  or  the  California  Pacific  Railroad  Company.  This  cov- 
enant is  a  clear  and  explicit  claim  of  the  right  and  power  to  continue 
to  issue  further  bonds  under  the  mortgages  of  the  companies  named, 


8 

which  right  and  power  it  agrees  not  to  exercise.  Acceptance  by  the 
mortgagee  of  this  covenant  not  to  exercise  the  right  is  a  clear  admis- 
sion by  the  latter  of  its  existence,  just  as  explicit  as  the  payment  of  a 
debt  is  an  admission  of  indebtedness  and  liability  to  pay.  Now  the 
right  to  continue  to  issue  bonds  of  any  one  of  these  constituent  com- 
panies, can  only  exist  by  virtue  of  the  consolidation,  and  if  it  exists  as 
to  one  company,  it  must  exist  as  to  all!  There  remains  then  the 
power  to  complete  the  issue  of  the  forty-six  millions  contemplated  by 
the  first  mortage  of  April  1st,  1875,  the  thirty-eight  millions  provided 
for  by  that  of  1888,  the  unknown  millions  of  the  Southern  Pacific 
Branch  Railway  Company,  to  say  nothing  of  the  unissued  bonds  of 
the  San  Pablo  and  Tnlare  Company,  the  San  Pablo  and  Tulare  Ex- 
tension Company,  and  any  other  constituent  companies  of  the  present 
S.  P.  R.  R.  Co.! 

Let  it  not  be  supposed  that  I  am  putting  on  this  instrument  any 
construction  not  designed  by  the  authors.  The  claim  of  authority  by 
the  present  company  to  continue  to  issue  bonds  under  the  mortgages 
of  companies,  which  ceased  to  exist  by  the  same  act  that  called  it  into 
existence,  is  made  throughout  the  document,  and  in  the  most  distinct 
and  explicit  manner.  Ex.  gr.  under  the  letter  A.  The  company  cov- 
enants for  a  limitation  of  its  further  issues  under  the  Southern  Pacific 
mortgage  of  1893,  so  that  the  total  issue  of  bonds  under  it  to  be  made 
for  the  purpose  of  replacing  (dollar  for  dollar)  the  earlier  mortgages 
of  the  S.  P.  R.  R.  Co.  and  the  S.  P.  Branch  Railway  Company,  etc., 
shall  not  exceed  $30,000,000,*  and  there  are  others  of  similar  import 
under  the  heads  E  and  F. 

2.  As  a  railroad,  without  an  equipment  of  locomotives,  cars,  etc., 
is  incapable  of  use,  the  absence  of  a  valid  mortgage  on  the  rolling  stock 
of  the  road  is  a  fatal  objection  to  these  bonds.  The  mortgage  indeed 
purports  to  include  the  rolling  stock,  equipment  and  machinery 
(present  or  hereafter  acquired),  but  the  law  of  California  requires 
mortgages  of  personal  property  to  be  recorded  in  the  county,  a  require- 
ment which  imports  the  necessity  of  description  of  the  property 
sufficient  for  identification.  No  description  whatever  of  the  rolling 
stock  of  this  road  is  contained  in  the  mortgage,  nor  is  it  even  alleged 
that  it  owns  any,  and  the  letters  S.  P.  generally  inscribed  on  the  loco- 
motives, cars,  etc.,  in  use,  may  stand  for  any  one  of  the  four  companies 
with  those  initials.  The  supplemental  contract  attempts  to  overcome 
this  objection  by  a  covenant  to  keep  a  list  of  the  mortgaged  rolling 
stock  on  file  in  the  office  of  the  Central  Trust  Company  in  New  York; 
but  this  covenant,  even  if  fulfilled,  is  ineffectual  as  a  compliance  with 
the  legal  requirements  to  record. 

It  seems  needless  to  go  further  in  the  examination  of  these  bonds, 
though  much  remains  unsaid.  It  appears  to  me  that  the  objections 
to  them  suggested  by  the  most  ordinary  prudence  are  quite  insuper- 
able. 

JOHN  T.  DOYLE. 

*  Just  here  is  presented  a  curious  arithmetical  difficulty  which  the  reader  will 
solve  for  himself.  The  aggregate  of  these  old  bonds  outstanding  is  over  $36,000,000. 
They  are  to  be  replaced  by  and  issue  of  the  present  bonds,  "dollar  for  dollar,"  and 
yet  the  amount  of  the  latter  to  be  issued  for  the  purpose  is  limited  to  $30,000,000! 
How  this  miracle  of  linance  is  to  be  effected  we  are  not  told;  yet  unless  taken  up  and 
discharged  they  remain  a  prior  lien  on  the  property  affected. 


